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United Arab Emirates

Country Name: United Arab Emirates (UAE)
Currency: United Arab Emirates Dirham (AED)
Primary Tax Authority: Federal Tax Authority (FTA)
Key Legislation:

  • Corporate Tax Law
  • Value Added Tax (VAT) Law
  • Excise Tax Law
  • Customs Law

Fiscal Authority Allocation

Centralized Fiscal System:
The UAE operates a centralized tax system for certain taxes, such as VAT and excise tax, administered by the Federal Tax Authority (FTA). However, there are no personal income taxes or general corporate income taxes for most businesses, with some exceptions for oil companies and foreign banks. Free zones also offer specific tax regimes with varying benefits.

Corporate Income Tax (CIT)

Standard Rate: 9% (effective from June 2023)
The UAE introduced a federal corporate tax on business profits for the first time, effective from June 1, 2023. The standard rate is 9% for businesses earning over AED 375,000 in annual profits. Profits below this threshold are taxed at a 0% rate.

Corporate Forms and Taxation:

  1. Mainland Companies: Subject to the new corporate income tax regime, with a 9% CIT rate on profits exceeding AED 375,000.
  2. Free Zone Companies: Entities operating in designated free zones may benefit from a 0% tax rate, provided they meet certain regulatory requirements and do not conduct business with mainland UAE.

Exemptions and Incentives:

  • Free Zones: Free zone companies may enjoy a 0% CIT rate if they do not conduct business with mainland UAE and meet other regulatory requirements. There are over 40 free zones across the UAE, such as the Jebel Ali Free Zone (JAFZA), Dubai Multi Commodities Centre (DMCC), and Abu Dhabi Global Market (ADGM).
  • Oil and Gas Companies: Oil and gas companies and branches of foreign banks remain subject to specific tax rates, which can be as high as 55% for oil and gas companies under individual agreements.

Goods and Services Tax (GST) / Value-Added Tax (VAT)

Standard Rate: 5%
The UAE implemented VAT in January 2018, with a standard rate of 5% on most goods and services. VAT is applied on the sale of goods, provision of services, and imports into the UAE.

Exemptions:
Certain goods and services, such as education, healthcare, residential properties, and some financial services, are either zero-rated or exempt from VAT.

Personal Income Tax (PIT)

No Personal Income Tax:
The UAE does not impose personal income tax on salaries or wages. Residents and expatriates enjoy a tax-free income system. There are no taxes on investment income, such as dividends or capital gains, except for certain business activities as defined under the new corporate tax law for companies.

Additional Mandatory Contributions

No Social Security Contributions for Expatriates:
While expatriates are not required to make social security contributions, UAE nationals and GCC nationals must contribute to the General Pension and Social Security Authority (GPSSA).

  • Employer Contribution: 12.5% of gross salary for UAE nationals.
  • Employee Contribution: 5% of gross salary for UAE nationals.

Withholding Taxes

  • Dividends: 0%
  • Interest: 0%
  • Royalties: 0%
    The UAE does not impose withholding taxes on dividends, interest, or royalties, making it an attractive jurisdiction for international business and foreign investments.

Transfer Pricing Rules

The UAE introduced transfer pricing rules aligned with OECD guidelines as part of the corporate tax law. Companies must adhere to the arm’s-length principle for related-party transactions, and detailed transfer pricing documentation may be required for large entities.

Special Tax Regimes

  • Free Zones: Free zones in the UAE offer significant tax advantages, including a 0% CIT rate, 100% foreign ownership, and exemptions from customs duties. Popular free zones include Dubai International Financial Centre (DIFC), DMCC, and Ras Al Khaimah Economic Zone (RAKEZ). Companies operating in free zones may maintain their 0% tax status if they do not conduct business with mainland UAE.
  • Oil and Gas Sector: Oil and gas companies are taxed at rates up to 55%, depending on their specific concession agreements with the government. The taxation of these companies remains outside the scope of the general corporate tax regime.
  • Financial Services: Branches of foreign banks operating in mainland UAE are subject to corporate taxes at rates typically ranging from 20% to 55%, depending on the emirate and specific agreements.

Other Taxes

  • Excise Taxes: The UAE levies excise taxes on specific goods that are harmful to public health or the environment. These include:
    • Tobacco products: 100% excise tax.
    • Energy drinks: 100% excise tax.
    • Carbonated drinks: 50% excise tax.
  • Customs Duties: The standard customs duty rate in the UAE is 5% on imported goods. However, goods imported into free zones are exempt from customs duties unless they enter mainland UAE. Specific items, such as alcohol and tobacco, may attract higher customs duties.

Double Taxation Agreements (DTAs)

The UAE has signed over 100 double taxation agreements (DTAs) with countries worldwide, including major economies such as the United States, United Kingdom, China, and India. These agreements help reduce withholding taxes on cross-border income and provide relief from double taxation for residents and businesses operating internationally.

Local Taxes

There are no local or municipal taxes on income or property in the UAE. However, some emirates impose municipality taxes on rental properties and hotel stays. For example:

  • Dubai Municipality Tax on Rentals: 5% of the annual rent for residential properties and 10% for commercial properties.
  • Tourism Fees: Hotel stays and restaurants may be subject to tourism fees, which vary by emirate.

Compliance and Reporting

Annual Filing:
Businesses are required to file annual corporate tax returns under the new corporate tax regime. VAT returns are filed quarterly, and businesses are responsible for reporting and paying VAT to the Federal Tax Authority.

Penalties for Late Filing:
Penalties apply for late filing or non-compliance with tax laws, including VAT and corporate tax. Penalties for non-payment of taxes may include fines and interest on overdue amounts.

Recent Developments

Introduction of Corporate Tax:
The UAE’s introduction of corporate tax in 2023 marks a significant shift in its tax policy. While free zones will continue to offer tax exemptions, companies operating in mainland UAE will be subject to a 9% corporate tax on profits exceeding AED 375,000.

Economic Diversification:
As part of its economic diversification strategy, the UAE is focusing on non-oil sectors such as technology, tourism, finance, and renewable energy. Free zones continue to play a crucial role in attracting foreign direct investment (FDI), offering tax benefits and simplified business regulations.

OECD Alignment:
The UAE is aligning its tax policies with international standards, including the OECD’s Base Erosion and Profit Shifting (BEPS) framework, through the introduction of transfer pricing rules and economic substance regulations.

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